Germany approves Opel bridging loan fund

The budgetary committees of two German state parliaments have approved funds for a bridging loan for Opel.

Germany approves Opel bridging loan fund

31 May 2009

The budgetary committees of two state parliaments approved funds Sunday for a bridging loan for Opel, a day after a deal was sealed to save the German carmaker from the looming bankruptcy of its US parent, General Motors.

The German government pledged to put up 1.5 billion euros ($A2.67 billion)in immediate funding as part of an agreement under which Canadian-based parts supplier Magna International will take over GM's European operations under the banner of Opel.

Half the money will be made available by Berlin, with the rest coming from the four federal states where Opel has plants employing a total of 26,000 workers. Two of the states, Hesse and North Rhine-Westphalia, approved their share totalling 597 million euros ($A1.06 billion) on Sunday.

Under the terms of the deal, Opel will be placed under the custody of a trustee to shield it from being drawn into insolvency proceedings when GM is expected to seek court protection from its creditors in the US on Monday.

The bridge loan will be used to finance Opel operations until a formal contract between Magna and GM is signed, something which experts say could take months. At present Opel is reported to be losing 3 million euros ($A5.33 million) a day.

Roland Koch, premier of Hesse, where Opel's headquarters in Ruesselsheim are located, said Magna has agreed to pump 500 million euros ($A888.73 million) in to the new venture over the next five years "without any form of security."

The German government has agreed to make available $US4.5 billion ($A5.74 billion) in loan guarantees.

In addition to Germany, GM has plants in Belgium, Spain, Sweden, Poland and Britain, where Opel cars are sold under the brand name Vauxhall.

About 10,000 of the 55,000 GM jobs in Europe are likely to be axed under Magna's restructuring plans, with up to 2,500 of the cuts taking place in Germany.

Magna made its bid for Opel in cooperation with two Russian partners, the state controlled Sberbank, and carmaker GAZ, owned by oligarch Oleg Deripaska. Italy's Fiat, another contender, pulled out of the bidding on Friday.

No details of Saturday's memorandum of understanding between Magna and GM have been disclosed, but the Canadian company is expected to take a 20 per cent stake in Opel, and its Russian partners 35 per cent. GM will also hold 35 per cent, and Opel employees 10 per cent.

The German government said it will not take a stake in Opel, which was taken over by GM in 1929.